WASHINGTON — Asia's raging financial crisis threatens to put a damper on global growth, but there is no reason to be overly pessimistic about the world economy's prospects, the International Monetary Fund said Saturday.
In its interim World Economic Outlook, compiled after the fund had to revise its original 1998 estimates amid Asia's financial woes, the IMF forecast sharp falls in Asian growth.
But the fund said overall world output will still grow by a buoyant 3.5% next year--0.8 percentage points below its previous forecast in October and 0.6 points below this year's estimated rate of expansion.
While noting that growth in North America and Europe looks "well sustained in the period ahead," the IMF warned: "A sharp slowdown in economic growth is an unavoidable consequence of the type of crisis affecting a number of the Asian economies."
Three former "Asian tigers"--Indonesia, Thailand and South Korea--have had to appeal to the international community for help over recent months as a financial tornado has ripped through the region. The IMF has put together international bailout packages for those countries totaling more than $100 billion.
Admitting that it originally misjudged the extent of the turmoil, the fund appealed to troubled Asian nations to urgently reform their fiscal systems, keep monetary policy tight and overhaul weak financial sectors.
Still, it warned that the risk of the Asian trouble spreading to other countries has grown and that there is no way of knowing whether the world has yet seen the worst.
"The balance of risks is a little on the downside," IMF chief economist Michael Mussa said at a news conference to present the report. "We should be worried but not concerned about the world economic outlook."
The lending agency warned that a further slowdown in the already sluggish Japanese economy would pose the "key risk" to advanced economies elsewhere in the world.
In the most gloomy section of its report, the IMF predicted that the Japanese economy will grow by only 1.1% in 1998, barely better than this year's 1%. It said that Japan's recovery has "essentially stalled" this year.
The IMF forecast that Thailand's economy will stagnate next year--the fund had predicted as much as 7% growth in Thailand in a report issued in May--after growing by 0.6% this year. Growth in South Korea is expected to fall to 2.5% next year from 6% this year, the IMF said.
The fund was decidedly more upbeat about the outlook for the major industrial powers in North America and Western Europe. It said growth in those regions is likely to continue on an upward path, particularly in the United States, which is in the seventh year of an uninterrupted economic expansion.